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of <h1>Appeal Dismissed for Failure to Meet Filters: Emphasis on Comparability Analysis and Arm's Length Prices</h1> <h3>PR. COMMISSIONER OF INCOME TAX-1, DELHI Versus M/s. CONVVERGYS INDIA SERVICES PVT. LTD & ANR.</h3> The court dismissed the appeal as Excel Infoways failed to meet the required filters, affirming the Tribunal's decision. The judgment emphasized the ... TP Adjustment - comparable selection - As per ITAT Excel Infoways failed the diminishing revenue filter - HELD THAT:- This Court is of the view that the intent of Chapter X of the Act is to compute the income in relation to a controlled transaction between an assessee and its associated enterprise having regard to the arm’s length price in order to nullify the effect of transfer of income to a jurisdiction outside India, if any, in respect of the controlled transaction. The exercise of determining the arm’s length price in respect of international transactions between related enterprises is aimed at determining the price which would have been charged for products and services, as nearly as possible, if such international transactions were not controlled by virtue of their being executed between related parties. The object of the exercise is to remove the effect of any influence on the prices or costs that may have been exerted on account of the international transactions being entered into between related parties. It is clear that for the exercise of determining the arm’s length price to be reliable, it is necessary that the controlled transactions be compared with uncontrolled transactions which are similar in all material aspects. Since, in the present case Excel Infoways Pvt. Ltd. fails not only the service revenue from export/ITES filter of 75% insisted upon by the TPO but also the diminishing revenue filter as is apparent from the chart reproduced hereinabove, no interference is called for in the finding recorded by the Tribunal. No question of law arises for consideration. Issues:1. Delay in filing the appeal.2. Challenge to the ITAT order on comparability standards for determining Arm's Length Price (ALP).3. Exclusion of Excel Infoways Ltd. as comparable.4. Dispute over service revenue filter.5. Exclusion of TCSE-Serve Ltd. and Infosys BPO.6. Failure of Excel Infoways to meet filters.7. Interpretation of Chapter X of the Income Tax Act for determining arm's length price.Issue 1: Delay in filing the appealThe delay of 85 days in filing the appeal was condoned by the court based on the application's averments.Issue 2: Challenge to the ITAT order on comparability standards for determining Arm's Length Price (ALP)The Appellant argued that the ITAT erred in setting stringent comparability standards, emphasizing the need for flexibility in comparability analysis to determine ALP. The Appellant contended that the ITAT's exclusion of Excel Infoways Ltd. was incorrect, citing discrepancies in the employee cost ratio and functional similarity test.Issue 3: Exclusion of Excel Infoways Ltd. as comparableThe Appellant contested the exclusion of Excel Infoways Ltd. as comparable, highlighting discrepancies in employee cost ratios and challenging the ITAT's decision based on the TPO's filter requirements.Issue 4: Dispute over service revenue filterThe Respondent supported the TPO's 75% service revenue filter and rejected the Appellant's suggestion for a 50% export filter. The TPO's order emphasized the need for predominantly service companies in the selection process, excluding companies with export service income less than 75% of sales.Issue 5: Exclusion of TCSE-Serve Ltd. and Infosys BPOThe Appellant did not press the appeal regarding the exclusion of TCSE-Serve Ltd. and Infosys BPO due to subsequent exclusions by the revenue and acquisition activities, respectively.Issue 6: Failure of Excel Infoways to meet filtersThe Respondent pointed out Excel Infoways' failure to meet the service revenue filter and diminishing revenue filter, supported by a chart from the Tribunal's order showing revenue trends over multiple financial years.Issue 7: Interpretation of Chapter X of the Income Tax Act for determining arm's length priceThe court emphasized the need to compute income related to controlled transactions between associated enterprises to prevent income transfer outside India. The judgment referenced a previous case to highlight the importance of eliminating material dissimilarities in comparables and ensuring reliability in determining the arm's length price.In conclusion, the court dismissed the appeal as Excel Infoways failed to meet the required filters, affirming the Tribunal's decision. The judgment underscored the significance of comparability analysis and the objective of determining arm's length prices in international transactions to prevent income transfer.
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